Hook & thesis
CarGurus is a marketplace that still looks cheap relative to its fundamentals and optionality. The company trades around $29.25 today against a market cap near $2.9B, generates meaningful free cash flow ($272.5M) and posts high returns on capital (ROE ~40%, ROA ~23%). Management is rolling out AI-powered consumer and dealer products and reports nearly 20,000 dealers on its intelligence platform - a setup that can meaningfully increase recurring revenue per dealer and justify a higher multiple.
Our trade: buy CARG at $29.25 with a stop at $25.00 and a primary target of $38.00 over a long-term (180 trading days) holding period. This is a medium-risk trade: the balance sheet is healthy, valuation is reasonable, and the risk/reward tilts in favor of upside should dealer monetization and international expansion accelerate.
Why the market should care - business overview and fundamental driver
CarGurus is an online automotive marketplace operating through three segments: U.S. Marketplace, Digital Wholesale (CarOffer) and Other. The core marketplace connects consumers and dealers, and the company is building adjacent services aimed at converting listings traffic into higher-value digital retail solutions for dealers. Digital Wholesale targets dealer-to-dealer flows and inventory management, a higher-margin, recurring-revenue stream when scaled.
Two drivers matter for the stock: (1) monetization and penetration of the dealer base - more dealers buying higher-tier intelligence and digital retail tools increases recurring revenue; (2) growth of digital wholesale and international expansion, which can diversify revenue and lift aggregate margins. Management's recent product push - including new AI offerings - is designed to accelerate both.
Numbers that support the argument
Look at the concrete financials and multiples:
- Market cap: roughly $2.9B.
- Free cash flow: $272,479,000 - a solid cash generator for a sub-$3B company.
- Price-to-earnings: ~19.8 (consistent with a growth/tech-adjacent marketplace).
- EV/EBITDA: ~10.4 and EV/SALES ~2.82 - reasonable for a profitable online marketplace with room to scale margins.
- Return on equity: ~40.5%; return on assets: ~23.0% - these indicate excellent profitability on deployed capital.
Technically, the stock is not exuberant. The 10-day SMA is about $28.17 and the 50-day SMA is $34.49; RSI sits in the mid-30s (~37.6), suggesting the recent pullback has created a lower-risk entry window for patient buyers. MACD shows a small bullish histogram, suggesting momentum is attempting to turn constructive after the pullback from the 52-week high of $39.42 (01/12/2026).
Valuation framing
CARG trades at a multiple profile that makes sense for a profitable marketplace that is still investing in product. A P/E near 19.8 and EV/EBITDA ~10.4 put CarGurus in the value-for-growth bucket: cheaper than many SaaS names yet pricier than cyclical auto dealers. The market appears to be awarding an earnings multiple that assumes steady marketplace monetization but only moderate upside from dealer upsell and digital wholesale. If dealer penetration deepens or international revenue begins to scale meaningfully, the multiple could re-rate closer to $38-$40 stock levels, which aligns with the prior 52-week high of $39.42 and the company’s growth narrative.
Trade plan (actionable)
Entry: Buy at $29.25.
Stop loss: $25.00 (hard stop).
Target: $38.00 primary target; consider trimming into strength at $34.50 and $38.00.
Horizon: long term (180 trading days). Expect this trade to take time because dealer upsell cycles and international rollouts are multi-quarter processes. Hold for up to 180 trading days unless the stop is hit or material negative catalysts appear.
Position sizing and mechanics: Start with a base position at the entry and add on evidence of accelerating dealer ARPU or stronger-than-expected digital wholesale growth. Take partial profits at $34.50 to lock gains and reduce exposure to a multiple-compression scenario.
Catalysts to watch (2-5)
- Dealer monetization acceleration - higher ARPU from PriceVantage, Dealership Mode, or other dealer subscriptions.
- Strength in digital wholesale (CarOffer) revenue and margins as dealer-to-dealer liquidity improves.
- International expansion updates or material revenue contribution from markets outside the U.S.
- Quarterly free cash flow beats and guidance upgrades that would support a multiple re-rate.
- Broader industry tailwinds: stabilizing used-car prices and growing listings volume that increases marketplace monetization.
Risks and counterarguments
No investment is risk-free. Here are the principal risks to the thesis and one counterargument worth weighing.
- Dealer monetization may not scale. If dealers do not adopt premium AI products or if churn rises, revenue growth could stall and the stock could return to mid-to-high $20s territory.
- Competition and pricing pressure. Larger platforms or regional players could undercut advertising and subscription pricing, pressuring margins.
- Auto market cyclicality. Weakness in vehicle sales or a softening used-car market could reduce consumer traffic and dealer budgets for premium tools.
- Execution risk on international expansion. International rollouts are costly and slow; failure to localize or gain share abroad would limit upside from the expansion narrative.
- Short interest and volatile flows. Short interest has been meaningful recently and short-volume spikes (e.g., 02/19/2026) can increase volatility and produce faster drawdowns on bad news.
Counterargument: An objective bear case is that CarGurus is primarily a listings business and advertiser budgets are shifting away from traditional models; without a clear subscription lift from dealers the marketplace could struggle to grow revenue meaningfully, keeping multiples capped. That is plausible and is exactly why we use a strict $25 stop and phase taking profits along the way.
What would change my mind
I would downgrade the bullish stance if any of the following occur: (1) quarterly results show falling ARPU or rising dealer churn; (2) CarOffer fails to show sequential growth or margin progress; (3) management delays or pulls back on international expansion guidance; or (4) the company reports a surprise deterioration in cash flow. Conversely, sustained sequential growth in recurring dealer revenue, clear evidence of international traction, or materially higher guidance would move me to add to the position and press the target toward the prior high near $39.40.
Bottom line
CarGurus combines strong unit economics with a product roadmap that can lift recurring revenue per dealer and expand margins. The market is currently offering an attractive entry near $29.25 given the cash generation profile ($272M FCF) and high returns on capital (ROE ~40%). The trade is not without risks - chief among them dealer adoption, competition, and execution on international expansion - but the reward looks meaningful relative to the downside if you control risk with a $25 stop and stage exits. For patient, disciplined traders, this is a buyable dip with a clear plan and defined risk controls.
| Metric | Value |
|---|---|
| Current price | $29.27 |
| Market cap | $2.9B |
| Free cash flow | $272,479,000 |
| P/E | ~19.8 |
| EV/EBITDA | ~10.4 |
| ROE | ~40.5% |
| RSI | ~37.6 |
Key data points to track in the next two quarters
- Dealer count and ARPU trends on quarterly disclosures.
- Sequential revenue growth in Digital Wholesale (CarOffer).
- Guidance for free cash flow and capital allocation (buybacks, M&A).
- Any updates on international user or revenue traction.
Trade: Buy CARG at $29.25, stop $25.00, target $38.00, long term (180 trading days). Manage position size and take partial profits at $34.50.